Real estate firms that, otherwise, might not have attracted a strong rating, have managed to pick up around Rs 1,240 crore at a lower cost, by issuing commercial mortgage-backed securities (CMBS). This is more than half the funds raised by real estate firms, across instruments, of R2,156 crore in 2014.

DLF, for instance, has, through its subsidiaries DLF Emporio and DLF Promenade, raised R525 crore and R375 crore, respectively, at a coupon rate of 10.9% through CMBS bonds; the bonds have a maturity period of 5.5 years.

In 2013, the Delhi-based real estate developer had raised R750 crore, at a higher coupon of 12.5% through non-convertible debentures (NCDs). The standalone credit rating of DLF's subsidiaries from Crisil is A and A2+. However the bonds issued through CMBS instrument is rated higher at AA with a stable outlook.

CMBS instruments have a higher rating as they have a better interest service coverage ratio with rental cash flows maintained in an escrow account. The interest and principal payments are made through the escrow account. Further protection in the instrument includes pledge of shares by the parent company, right of sale, mortgage of the property and availability of adequate debt service reserve account.

“These structural characteristics enable delinking the rating on these instruments from the parent's credit risk-profile,” Crisil said in a note.

On an analysts call earlier this month, DLF confirmed it was looking to raise a further R3,000-3,500 crore through CMBS.“We are trying to do a CMBS on our SEZ assets and the largest one is the DAN-SPV where the number could be northwards of R3,000 crore,” said Saurabh Chawla, ED, finance.

“Real estate players are looking for alternative forms of funding to help them get a better lender profile and a lower interest rate,” said Jayen Shah, senior director and head of fixed income sales at IDFC.

Earlier this month, IDFC arranged a R340-crore bond issue through the CMBS instrument for Intime Properties, a subsidiary of the K Raheja Group. InTime's bonds was rate AAA by India Ratings and had a coupon rating of 9.95% with a maturity period of nine years.

Bankers say in addition to accessing cheaper funds, companies prefer CMBS bonds as the Sebi rules for listing are far more simpler and transparent. “Sometimes, banks invest in their bonds as we have an existing relationship with them and this works as a way to extend credit to them,” said a treasurer